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South African SEM Firm Files Complaint Against Google SA For “Abuse Of Dominance”

South African online marketing firm Entelligenceannounced that it had filed a formal complaint with the Competition Commission of South Africa against Google’s South African operation for “abuse of dominance in terms of Section S8(d)(i) of the Competition Act 89 of 1998, which prohibits a firm from ‘requiring or inducing a supplier or customer to not deal with a competitor.’”

The firm contends that Google effectively stole its client, a yellow pages publisher. Here are the factual claims as Entelligence presents them:

On 25 June 2008 Entelligence met with Google South Africa to discuss the maximization of traffic to the Yellow Pages website. Clear actions were agreed upon to jointly cooperate in increasing advertising performance. However, that evening Google South Africa edited the Cost Per Click for every Yellow Pages advertisement from 60 cents to R 2.00 without notifying Entelligence in advance. This unauthorized and unethical behaviour jeopardized ad performance and the net effect of this action on Google’s part was to drive expenditure on the Yellow Pages account upwards.

On 26 June 2008 Entelligence rectified these changes on the Yellow Pages account and voiced their concerns with the Country Manager of Google South Africa. Google South Africa remained unapologetic and quiet about the incident. This single event led to a relationship breakdown between Google South Africa and Entelligence.

Entelligence then discovered that Google South Africa was directly pitching for the account to manage the Yellow Pages advertising on Google’s AdWords system. Google South Africa announced that Yellow Pages is in fact a “named account” that they intended servicing directly as part of their greater strategy within South Africa. If Yellow Pages is indeed a “named account”, this should have been disclosed by Google South Africa to Entelligence upfront so as to ensure competition on an equal and fair basis. Instead Google South Africa took Entelligence into their confidence, encouraged discussion around Entelligence’s strategy with respect to Yellow Pages, and allowed Entelligence to demonstrate their proprietary technology developed to manage Google AdWords specifically for Yellow Pages.

Google South Africa has continued to engage with Yellow Pages and attempted to solicit them to cancel their AdWords services with Entelligence and allow Google South Africa to manage this account directly.

Entelligence claims that “Google holds at least a 90% market share of search engine traffic in South Africa and approximately 98% of all revenue relating to Pay Per Click search advertising in South Africa is spent on Google and the Google Content Network.”

Back in the US PaidContent and the NY Times report on a “charm offensive” by Google seeking to develop closer ties to traditional ad agencies to get into the brand budget. But there’s fear that Google ultimately wants to have direct relationships with companies and “disintermediate” the agencies (along the lines of what Entelligence claims).

Agency reactions to Google’s efforts to court them appear to be “mixed,” with some agencies expressing skepticism and concern over Google’s ultimate intentions. The company does have a direct sales force and account reps, based in New York, to deal with major advertisers. However, as a practical matter those personnel cannot (and probably won’t) replace traditional agencies.

Mega-agency WPP’s CEO Sir Martin Sorrell reportedly changed his characterization of Google from “frenemy” to “froe,” whatever that means exactly. By contrast, Google has a significant relationship with Publicis, another major global ad firm. The company recently agreed to sell the search marketing unit of DoubleClick, Performics, to Publicis.

At the lower end of the advertiser spectrum, this “frenemy” tension also exists, with yellow pages publishers and newspapers. Google actively courts and needs these companies as channel partners to reach small business advertisers. Simultaneously, however, Google is also seeking ways to directly penetrate the SMB market more deeply on its own. So the two sides of the market mirror one another in these respects.

Google sincerely needs partners to fulfill its ambitions but will also likely continue to reach out to advertisers, large and small, directly. Thus the “frenemy” tensions will likely persist.

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About The Author

Greg Sterling is a Contributing Editor at Search Engine Land. He writes a personal blog, Screenwerk, about connecting the dots between digital media and real-world consumer behavior. He is also VP of Strategy and Insights for the Local Search Association. Follow him on Twitter or find him at Google+.